Video summary
Max Levchin begins by addressing his deep concerns regarding socialism, drawing from his personal experience growing up in the Soviet Union where he witnessed firsthand its corrosive effects on human nature. He acknowledges that while the ideals of sharing resources and doing what is right without financial incentive sound seductive to many, these concepts inevitably fail because they ignore fundamental aspects of human behavior. Levchin illustrates this failure with a vivid anecdote about government-owned stores in the USSR, where employees were often overweight despite everyone else being skinny; he explains that this disparity existed solely because those workers stole food from the very system meant to distribute it fairly. He argues that under socialism, individuals who manage redistribution inevitably become corrupt once they gain power, keeping resources for themselves rather than distributing them as intended, which serves as an undeniable indictment of the socialist model's inability to function without corruption.
The core argument against central planning presented in his speech revolves around the lack of competition and innovation inherent in a state-controlled economy. Unlike free markets where businesses are forced to compete by lowering costs and improving efficiency to attract customers, centrally planned systems mandate prices and production quotas that remove any pressure for improvement. Levchin points out that this leads to natural stagnation, as seen when he moved from the Soviet Union to the United States and marveled at modern phone buttons compared to the rotary phones still in use decades later due to technological inertia. He emphasizes that capitalism drives "creative destruction," where even if some businesses fail or workers are laid off during disruptive changes like industrialization or AI advancements, the overall system benefits consumers through better products and lower prices over time. Eliminating this competitive pressure results in a static society that rewards graft rather than talent, preventing anyone from innovating to improve societal efficiency.
Despite his strong stance against socialism as an economic framework, Levchin does not dismiss the legitimate human desire for safety nets or address income inequality caused by market disruptions. He admits that capitalism can be profoundly unfair to individuals who lose their jobs due to obsolescence or misinvestment, making the appeal of welfare and social protection understandable. However, he firmly rejects the solution of handing all redistribution power to a government elite as ineffective and dangerous. Instead, Levchin advocates for philanthropy and "prosocial product engineering," where companies choose to optimize products not just for maximum profit but also for societal benefit, even if it means accepting slightly lower margins in the short term. He believes that through voluntary giving inspired by ethical frameworks found in various religions and market-driven innovations like Affirm's financial services, society can protect its most vulnerable members without sacrificing progress or falling into the trap of centralized control.
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As someone who came here at 15 or 16, I
would just love to hear you speak for a
few minutes on what you're seeing and
what your thoughts are.
>> I'm pretty worried.
Not to sort of go all dark immediately,
but
I think
people without the benefit of
questionable benefit of growing up
in
the collectivist paradise to quote the
current mayor of New York, don't
understand just how corrupting it is.
The ideas of socialism are amazing. This
you know, me for my fellow men and share
and share alike and do the right thing
because it's the right thing to do not
because there's a financial incentive to
do it. All those things sound amazing
and so it's seductive. The idea of a
workers' paradise without the greedy
lenders, capitalists, bankers, all all
the sort of things we were fed as
children or I was fed as a child in
Soviet Union.
At first blush, you're just like, "Yeah,
I make sense. People who work hard
should have more and people who
are
great, even though they're not capable
of producing valuable things in society
because they're good people, should have
everything that I have even though I'm
working harder than they are." Then
those things sound pretty good, but they
inevitably require a bunch of structural
change that just does not work thanks to
human nature and many obvious things
like it.
For example,
one of the greatest kind of
mental images I have from growing up in
Soviet Union is if you went to a
government-owned store and every store
was of course owned by the government,
you would very quickly notice that the
people whose job was to sell you things
from behind the counter were always very
fat.
While everyone you knew in your life
were always very skinny.
And you're just like, "This doesn't make
any sense. Like how did these people who
happen to work in food stores are always
really well fed? It's like, well,
because they're stealing. Like, they
get access to the food. And it expands
the notion of this idea of everybody
just pulls all their work product into
one big pool, and then someone's in
charge of fairly distributing it to
everyone who needs it. From each
according to their abilities to each
according to their need is kind of the
socialist/communist motto.
And it works great, except people who
are doing the actual redistribution get
to keep a lot for themselves. And
doesn't matter how
honest they begin that journey, by the
time they get to real power, they become
profoundly corrupt and steal and keep
and redistribute primarily to
themselves. And so,
that alone is just like an indictment of
socialism that you cannot get around.
But, it gets worse because
markets, free markets, capitalism, you
know, whatever term you want to use,
inherently forces competition.
If you believe you have a thing that you
can sell at a lower price than the other
guy,
you get the market's attention, you get
the business that's available to you
because the thing is worth buying by
someone, you're going to work on
creating a margin for yourself by
lowering the cost of production, finding
efficiencies, finding some ways of
making the thing cheaper for you and or
cheaper for the buyer so you can compete
on price. So, all those things cannot do
not exist in socialism because it's all
centrally planned. We're going to make
this many widgets, and then we're going
to have someone redistribute them to all
the right people, full stop. And what
happens is there's never the pressure to
improve. And so, you always make stuff
at the government mandated cost, and the
government mandated price is what's
being used to sell it. And so, you have
natural stagnation. You have a system
that rewards graft, gives power to
people who are most likely to become
graft driven,
and prevents anyone else, talented or
otherwise from trying to innovate and
improve the efficiency of the system
itself. And so it just does not work.
And the thing that worries me in the US,
you know, and and the world, this this
isn't unique to
to us here,
is the headlines that make you feel
like, "Wow, I would love to live in the
world where everyone is fed and everyone
gets more or less the baseline of good
living."
is very compelling. Like it is easy to
agree with.
The recipe for that remains to be the
best recipe we know, the best recipe
we've discovered as humanity, is
capitalism, a force for constant
creative destruction where you build the
next thing better than the other guy.
And yes, his business may be put out
because your business thrives, but the
beneficiary is the buyer or the the user
of the product, the buyer of the widget,
because you're constantly working to
make the whole thing more efficient. If
you eliminate the ability to or you
eliminate the need to create
efficiencies, you just stagnate. And the
death of Soviet Union was surprised to
exactly zero people because we knew,
ask people who lived there
more than most, that nothing ever
changed for the better. Like everything
was the same price, the
government-mandated price, and we were
still using phones that looked like they
were made in 1950s. And when I moved to
the US, I was like, "Oh, you have
buttons on your phones? That's amazing."
Like we still did
Like the the clicky rotary.
>> Yeah.
>> And so anyway, I can't say enough how
the seductive story of socialism really
appeals and I can understand why,
but
>> [snorts]
>> you know, if I if I didn't have my day
job, I'd spend a lot of time screaming
from every street corner, don't don't
fall for the trap.
It's a surefire way of getting to no
progress at all.
>> So, a firm, you know, on some levels
is a I don't want to say response, but
it's a solution that replaces
potentially predatory practices, right?
And we're going to get to that. But I'm
wondering how you would explain the
current apparent wellspring of
attraction to
just to keep it simple, socialism in the
United States. Are there structural or
systemic problems that have contributed
to that? Is it mostly sort of demagogues
using whatever talking points they think
they can
leverage to attract votes, etc. What is
the cocktail? What are the ingredients
in the cocktail that are contributing to
this current phenomenon in your mind?
>> I'm confident I don't know every strand
of this particular disease. So, it's
it's it's a complicated issue and
I think
it is definitely the case that the
brochure looks great.
The storytelling of do you know someone
who's poor? Do you know someone who
deserves better? Do you know someone
who's been laid off? It is the case that
capitalism can be profoundly unfair, at
least to an individual. As as a system,
as a way of improving the world, it
works amazingly well. We've not created
anything better. But
you get thrown off the bus if you
build something that gets outmoded or
outcompeted by another participant in
the market, and it can hurt. And for an
entrepreneur, it looks like failure,
which we are wired to accept, but it
still hurts.
For a worker, it looks like being laid
off, which could be catastrophic for a
family.
For
people who sort of misinvested their
money or something went wrong, it
doesn't taste good. And so, the idea of
social safety net, the idea of welfare
is natural. You hate seeing your fellow
men and women starve or not do well. So,
I understand
the definition of the problem and the
notion of income inequality and like all
the things that we see in Silicon Valley
firsthand
is very real. It's not like how are you
complaining like there are a lot of
people who are not doing well and every
new disruptive change from
you know, the Industrial Revolution to
the AI Revolution, there's always
someone on the receiving end of the
efficiency because their work is no
longer required or their products or
their ideas are no longer relevant. And
so, socialism is a compelling story of
how to protect those people, how to
prevent them from suddenly being on the
outskirts of society or worse.
And I think there's definitely a lot to
do to make sure we don't leave our
fellow humans behind. Certainly my love
of capitalism and free market
does not
obviate my humanity. I care about people
just because I am also human.
And I see it as part of my job to ask
the question, can we do better? Can we
provide the social safety net for
everyone? We're creating more and more
efficiency, we're creating more and more
value. There have to be ways of helping
people who are thrown off the bus to
make sure they don't end up in the
gutter. And I happen to have some
solutions that I love and solutions that
I think are worthless. The idea of let's
concentrate it all in the hands of the
government, give a handful of people the
right to redistribute it all
and we'll do better doesn't work and I
lived to tell the tale.
I do think that things like philanthropy
is profoundly important and the more
disruption we're going through as a
society, the more important philanthropy
becomes and I think in that sense
I'm not in the specially outwardly
religious, but I think
religion provides a really useful set of
frameworks around how to think about it.
You know, every organized religion has a
version of what it means to be
philanthropic and the older I get, the
more I start
respecting the thought that's sort of
been aggregated over the thousands of
years that most religions existed.
So, I think that's super interesting and
important and
worth
participating in.
On the other side of it is, I think
capitalism in particular
has created opportunities for products
to develop where
the sort of
optimizing up into the right of the
most profit at lowest cost
ends up building products that are
actually devolved from not just their
economic platonic ideal, but societal
ideal.
And I don't think we have to compromise
by saying, well, you know what? I don't
actually care that this is harmful to
someone because it's the most profitable
market efficient thing to do. And my
theory for a long time has been that you
can build products, certainly financial
services
that are optimal not just from the lens
of most profitable, but also most
societally beneficial. And that's not
uniformly distributed. There's plenty of
products that look like predatory
lending and all the other things, or
just sort of make money because the
underlying customer doesn't understand
what's going on, doesn't have the
capacity to deal with the complexity of
the math involved. Affirm is the answer
to that question. In some ways what we
are doing here is trying to say, look,
you can optimize a product beyond just
making the most money. In fact, it's
okay to make a little bit less money
if you are able to create something
that's societally more
successful, more important, because in
the long term, I think you will have
retention that consumers will not go to
a cheaper product or a product that is
less profitable for shareholders because
it's so societally important. And so, I
am to at least some extent embracing the
ideas of prosocial product and
engineering. I just choose to do it
strictly through the lens of capitalism.